Equity release companies to avoid

Equity release companies to avoid

This page was last updated on 1 September 2021. 

Equity Release Companies To Avoid In 2021

If you are over 55, you may be considering different ways to gain access to a regular income in retirement. Equity release could be one option for this. This article will help explain the pros and cons of different types of equity release, and you should look for and what to avoid in an equity release company. 

It is vital that you ask for independent financial advice before deciding to enter into any equity release schemes.

Topics that you will find covered on this page

You can listen to an audio recording of this page below.


 

What is Equity Release?

Equity release is a financial product which allows you to access the value of your property whilst living in it. This value of your home  is turned into a cash lump sum. It can also be turned into more regular smaller payments, or both. You can also use equity release to clear an outstanding mortgage or other debt you have. 

Equity release is available to owners of homes or other investment property aged 55 and above. The equity release product you get is normally only paid back after you die or go into care. This is the same if you take out the equity release product with a partner. The loan will only be repaid once they also go into care or pass away. 

What is an Equity Release Company? 

An equity release company is a company that lends money to someone who is looking to get an equity release product. There are different equity release lenders available offering different equity release products. Make sure to find the most appropriate one for you.

Equity Release Companies to Avoid

Avoid equity release providers that aren’t members of the Equity Release Council. The Equity Release Council protects you from the possible risks of equity release.

Make sure to avoid equity release companies that don’t guarantee no negative equity. Otherwise, your debt won’t be capped at the value of your home. 

Don’t go for equity release companies that don’t offer fixed interest rates on a lifetime mortgage, or variable rates with an upper limit. A lack of a fixed interest rate could lead you to owe more than you expect at the end of your loan. 

Also, avoid equity release providers which don’t let you stay in your home until death or until moving into permanent residential care. You have the right to stay in your property while using equity release schemes with the ‘Right to Remain.’ 

Equity release companies that have very early or high repayment charges should also be avoided. Research the equity release market to find the options that are the most affordable and that protect customers. 

Avoid lenders which give you large loans without assessing your personal circumstances. Equity release lenders should have your interests at heart. 

Stay away from equity release companies which don’t protect and help vulnerable customers. Equity release companies should not exploit you. 

Try our free equity release calculator and see how much you could borrow in 30 seconds

Types of Equity Release

The two main forms of equity release are lifetime mortgages and home reversions. Below you can read about the differences between types of equity release, and see which one is best for you.

Lifetime Mortgage 

You are most likely to find this type of equity release, as it is the most popular.To take out a lifetime mortgage you need to be 55 years old or above. With a lifetime mortgage you can take out a loan which is calculated as a proportion of your property’s value. When you do this you can continue to live in your property. 

Interest is compounded on top of your loan while you take it out. The mortgage and interest are only repaid after you die or move to long-term care. Yet, you might be able to pay some of the interest or all of it while taking out the loan. This could reduce the total amount you would have to pay back once you reach the end of your loan period. 

"Equity release is a financial product which allows you to access the value of your property whilst living in it. This value of your home is turned into a cash lump sum. It can also be turned into more regular smaller payments, or both."

Home Reversion

You often need to be at least 65 years old for this type of equity release. With a home reversion, you can sell your property – in part or in full to a home reversion provider. You can still live in your property as long as you continue to maintain and insure it. You can then choose to receive a lump sum of money or regular payments in return. 

When your property is sold, a share of the value of the property is given to the equity release provider. You can choose what percentage of your property the equity release lender owns so that a proportion of it can still be passed on as inheritance. The property is then sold when you pass away or go to long-term care. 

Equity release providers

Advantages of Equity Release 

You could receive a tax-free lump sum. Or you can receive smaller, regular payments if you prefer.

You can continue living in your own home instead of having to downsize.

With lifetime mortgages, you have the advantage of your property increasing in value. This means that there should still be money from your property to leave as inheritance to your family after it is sold. 

You pay back the total amount of the equity when you sell your property or move into full-time residential care. It can also be paid when your property is sold. This can be a better alternative to monthly repayment.

Generally, equity release loans have fixed interest rates which makes it easier to calculate what you owe once the loan period is over.

If you decide to move house, your lifetime mortgage can be transferred to your new property. This can only happen if your equity release company decides your old and new homes are of a similar value.

You can take part in lifetime mortgages schemes even if you have an outstanding current mortgage to pay. You will still have to pay this mortgage off, but you can use some of the money released from your property to do so. 

Equity release provides you with money that is tax-free.

equity release company

Disadvantages of Equity Release 

Equity release could reduce the value of your property. This means the amount and value of inheritance you will have to pass on to your family members will be reduced. 

With a home reversion, your home is either all or partially owned by a reversion company.

You could be entitled to fewer means-tested benefits if you take out an equity release loan.

With equity release you receive less for your house than you would if you sold it on the open market.

With a lifetime mortgage, there is a risk of you owing more than you borrowed once the time comes to sell your property. This is because compound interest is charged on top of the loan.

You could end up with negative equity, where your property value is less than the amount of the loan you owe.

Equity release sometimes costs a lot, and it can be hard to undo your equity release plan if you change your mind on it. If you decide to change your equity release plan you might have to pay an early repayment charge. 

Are Equity Release Schemes Risky? 

The Financial Conduct Authority (FCA) now controls equity release companies. This means you can claim compensation if you sold an unsuitable product. 

You still need to think carefully before getting equity release. There are many risks when you take out equity release. It’s important to find companies that are reliable and which provide good deals for you. It is also crucial to consider the types of equity release, and which one is best for you. 

What is the Equity Release Council?

The Equity Release Council acts as a representative for equity release providers. It also encourages high quality conduct and protects equity release consumers. The Equity Release Council makes it easier for customers to receive reliable advice on equity release. 

The good news is that there are new laws to protect customers in the equity release sector. The Equity Release Council helps you know which release companies to avoid. 

What is a No Negative Equity Guarantee?

A no negative equity guarantee means that you cannot owe more than the value of your home. Once you have paid back your debt up to the value of your home, the remainder is written off.This is why the best equity release companies are ones that have a ‘no negative guarantee.’

Advice for Using Equity Release Products 

Consult independent advice from a financial adviser or equity release adviser first who will be able to advise you on what the best equity release providers are for you. 

Only get an equity loan from a company which the Equity Release Council accredits. A company which is not accredited by the Equity Release Council could be untrustworthy. 

Research the best equity release deals. This will help you find what is best for you.

Borrow as little as you can at first, instead of the full amount. The earlier you borrow money, the more years there will be for interest to be added onto your loan.  This could lead to you owing more money than you need to borrow. 

Alternatives to Equity Release 

Although equity release could be the right option for you, it’s good to consider different alternatives too. Some of these are listed below:

  • Selling assets to raise money
  • Downsizing to a smaller house which is cheaper to maintain than your current house. With downsizing you would spend less money maintaining your house. You would also raise money through selling your current property
  • Remortgaging your current property or modifying the current mortgage. This could help you save money without having to loan more
  • Changing your budget would also help you to save money. This could stop you spending money without needing to 
  • Using private pensions instead of equity release

How Much Does Equity Release Cost? 

Equity release will involve initial costs as well as the loan you take out. These costs could include an advice fee, an arrangement fee, also known as a completion or application fee, a legal fee and a valuation fee. You pay the application fee when first arranging your mortgage with a provider. 

A legal fee is required to pay for a solicitor to sort out the legal aspects of your equity release. The application fee covers any legal costs.These fees alone could cost up to £3000. You may also have to pay a solicitor or financial advisor for equity release advice. An equity release mortgage therefore requires consideration as it can be very expensive.  

The current interest rate for a lifetime mortgage is 5% or lower. Even though the interest rate can be fixed, it is compounded or ‘rolled-up’ over the course of your loan. This means that every month or year the amount you owe will be recalculated to include the added interest. The interest rate for equity release products is currently at an all-time low. 

equity release lenders

Who Can Get Equity Release?

Equity release is available to all homeowners over the age of 55 whose property is valued at £70,000 or more.

People considering equity release may be looking for a lump sum of money.

They may also be looking for more regular payments as a retirement income. They may also want to continue living in their home.

Conclusion 

Equity release is something you can consider if you’re reaching retirement age. It can be useful if you are looking for a way to earn some more money, especially if you want a monthly income. 

Equity release might not be the right choice for you so you should consider it carefully first. Look for what equity release companies to avoid so that you find the best equity release deal for you. Financial advice is useful before you make any decisions on equity release products. There may also be better alternative methods of raising money in retirement. Other methods could prevent you from decreasing your inheritance or accumulating debt.

Try our free equity release calculator and see how much you could borrow in 30 seconds

 

Want to speak to a specialist to see if equity release is a good idea for your circumstances or just to see what the latest deals are? 

You can contact us in one of 3 ways.   

  • Option 1 – Call directly on – 0333 567 1607
  • Option 2 – Book an appointment directly in the calendar below, and one of the Key team will call you back at your chosen time to discuss your requirements
  • Option 3 – Leave your contact details below and we will get in touch with you.

 

Option 1 – Call directly

Mon – Thurs – 9am – 8 pm

Friday – 9am – 5:30pm

Saturday – 9am – 5pm

Option 2 – Book an appointment, in the calendar below, for an equity release specialist to call you back when its convenient

Option 3 – Leave us your details and we will get in touch

Leave your contact details below and one of the equity release team will give you a call to discuss your needs.

Please note that all calls are undertaken by Key Equity Release, the UK’s leading equity release specialists. Key Equity Release is a trading name of Key Retirement Solutions Limited which is authorised and regulated by the Financial Conduct Authority

Other articles that you may find useful

is equity release a good idea

Many people consider equity release in later life but are unsure of whether or not an equity release product will be a good fit for their situation. This article help you understand if it is right for you.

how does equity release work?

Equity release can be confusing at times.  This in depth articles explains how equity release works, who the main providers are and the different type of products available today. We also expllain the pros and cons of taking out a scheme.

pros and cons of equity release

There are several key pros and cons to taking out an equity release product. This article examines the range of advantages and disadvantages associated with equity release. A worthwhile read if you are considering your options.

Lifetime mortgages are a popular type of equity release where you take out a loan secured against the value of your home. This type of scheme allows you to unlock money that is currently tied up in the value of your property.

equity release calculator

Most kinds of equity release calculator online are free to use.  All you have to do is fill in some basic information about your individual circumstances, and you will be shown an instant quote.

Home Reversion Plans

A home reversion plan is a scheme where you sell all or part of your home to a home reversion company in return for tax-free cash.  The money you release with a home reversion scheme can either be a cash lump sum or a regular income

Article author

James Lloyd

I am the primary writer and author for Help and Advice, having originally helped start the site because I recognised that there was a need for easy to read, free and comprehensive information on the web. I have been able to use my background in finance to produce a number of articles for the site, as well as develop the financial fitness assessment tool. This is a tool that provides you with practical advice on improving your personal financial health.

Outside of work I am a keen rugby player and used to play up to a semi-professional level before the years of injury finally took their toll.  Now you are more likely to see me in the clubhouse enjoying the game.

Email – james@helpandadvice.co.uk

Linked in – Connect with me

Frequently Asked Questions

Who Can Get Equity Release?

Equity release is available to all homeowners over the age of 55 whose property is valued at £70,000 or more. People considering equity release may be looking for a lump sum of money. They may also be looking for more regular payments as a retirement income. They may also want to continue living in their home.

What is a No Negative Equity Guarantee?

A no negative equity guarantee means that you cannot owe more than the value of your home. Once you have paid back your debt up to the value of your home, the remainder is written off.This is why the best equity release companies are ones that have a ‘no negative guarantee.’

What is an Equity Release Company? 

An equity release company is a company that lends money to someone who is looking to get an equity release product. There are different equity release lenders available offering different equity release products.

What is Equity Release?

Equity release is a financial product which allows you to access the value of your property whilst living in it. This value of your home is turned into a cash lump sum. It can also be turned into more regular smaller payments, or both. You can also use equity release to clear an outstanding mortgage or other debt you have.

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